Your Guide to the Most Common Financial Issues of a Divorce (2022)

A Look at the Division of Property, Debt, Retirement Funds, and Taxes in Divorce

Your Guide to the Most Common Financial Issues of a Divorce (1)

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Deborah Fowles

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Deborah Fowles was a financial planning and budgeting expert for The Balance who spent over a decade contributing her expertise. She worked in a variety of fields prior to diving into writing, including pathology and marketing. In addition to publishing two books about personal finance, she wrote poetry, for which she won the Poetry Guild's Award for outstanding poetry composition in 1997.

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Updated January 14, 2022

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Somer G. Anderson

Your Guide to the Most Common Financial Issues of a Divorce (2)

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​Somer G. Anderson is CPA, doctor of accounting, and an accounting and finance professor who has been working in the accounting and finance industries for more than 20 years. Her expertise covers a wide range of accounting, corporate finance, taxes, lending, and personal finance areas.

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Divorce is stressful emotionally, mentally, physically, and yes, financially.

During a divorce, you and your spouse will be forced to make and accept decisions that have a major impact on your current and future financial situation and security. The most important thing to remember? Don't go into them uneducated and alone.

While many people choose to consult a family law attorney in their divorce proceedings, too few engage the expertise of a financial planner and/or CPA. To understand some of the basics, here's a guide to some of the biggest financial concerns of a divorce.

Dividing Property in Divorce

When a marriage comes to an end one of the first decisions you have to make is how you'll divvy up the property you own.

Who gets the antique mirror your mother-in-law gave you last Christmas? Who gets the stocks in GE? What about the furniture? Your car? How do you split up the accumulated belongings of years of marriage?

Diving property can be as much decided by state law or court-order as it is compromise and agreement between you and your spouse. Currently, there are nine states (namely, AZ, CA, ID, LA, NV, NM, TX, WA, and WI) that are community property states. These states have laws that hold that all assets acquired during the marriage by either spouse are considered joint marital assets. Joint marital assets are generally divided equally between the spouses in a divorce.

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Beyond the unique laws in community property states, there are several other routes taken for the division of marital property. Surprisingly, many people come to a relatively amicable agreement about the division of property, but if there is disagreement about one or more items, there are a number of fair methods for deciding who gets what.

One of the most common is bartering, where one spouse takes certain items in exchange for others. For example, the wife may take the car and furniture in exchange for the husband getting the boat.Another method used in the division of property is to sell the marital property and divide the proceeds equally. Often times, mediators or arbitrators may also be used.

Be sure to familiarize yourself with the laws that govern the division of property in your state. You can find information for your state at DivorceNet.com.

When it comes to property like houses, there are specific issues you might want to consider, especially if you want to buy a new house during the course of the divorce. Make sure you find out the legal requirements and restrictions so that you will not end up with the short end of the stick.

Dividing Debts in Divorce

Often even more difficult than dividing the property in a divorce is deciding who will be responsible for any debt the couple has incurred during their marriage. In order to do this, you'll need to know how much you owe and to whom.

Even if you trust your spouse fully, do yourself a favor and order your credit report from each of the three credit reporting agencies: Equifax, Experian, and TransUnion. Your credit report breaks down everything you owe in your name, including joint accounts you share with your spouse.

Go through the credit reports and identify which debt is shared and which is in your spouse's name only. At this point, it's important to stop the debt from growing any larger while you're in the process of getting divorced. The best way to do this is to cancel joint credit cards, leaving one card in your name in case of emergencies.

Once you've identified your debts and taken steps to ensure they don't increase, it's time to decide who will be responsible for what debt. There are several ways to do this, including:

  • If possible, pay off the debts now. If you have savings or assets you can sell, this is the cleanest method. You don't have to worry that your spouse will leave you responsible for his/her portion of the debt, and you can start your new life debt-free.
  • Agree to take responsibility for the debts in exchange for receiving more assets from the division of your property.
  • Agree to let your spouse take responsibility for the debts in exchange for receiving more assets from the division of property.
  • Agree to share responsibility for the debts equally. Though at first glance this choice appears most "fair," it does leave both of you the most vulnerable. Legally, you are still responsible if your ex-spouse doesn't pay up, even if s/he signs an agreement taking responsibility for the debt.

Tax Issues in Divorce

People sometimes get caught up in the most obvious and talked about issues of divorce such as the division of property and debt, who will have custody of the kids, etc. As a result, many don't think through the tax implications of their divorce, an oversight that can cost thousands of dollars or more.

This is where a certified public accountant (CPA) comes in very handy as a part of your divorce team. Tax issues that may arise from divorce can include:

  • Who will get the tax exemption for dependents?
  • Who will be able to claim Head of Household status?
  • Which attorney fees are tax-deductible?
  • How can you be sure "maintenance" payments will be tax-deductible?
  • How can you avoid the mistake of having child support be non-deductible?

Of course, as tax law changes and your unique situation may require special consideration, be sure to also consult a tax professional.

Retirement Plan Issues in Divorce

If your spouse has retirement savings, you are probably entitled, by law, to half.

This money can be used for your own retirement or for a down payment on a house, relocation expenses, or other current expenses. To avoid the 10% penalty on early withdrawal, be sure to follow IRS regulations.

The primary issue with a division of retirement assets is that while the assets may or may not have been sufficient for your joint retirement needs, more than likely your individual retirement needs will be much greater. As a result, not only must you consider how these assets will be divided, but how you will continue to contribute to them in order to secure your financial future in retirement (even as your near future may be in question as well).

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Educate Yourself

Divorce can bring out the worst in some people, and you need to be aware that even the most honest of people may try to cheat when it comes to settling up financially in a divorce. Spouses may underreport income, ask an employer to delay a large bonus or salary increase, among other dishonest behaviors. Most vulnerable are those whose spouse owns a closely-held business.

The best defense when facing the financial concerns of a divorceis knowledge. It is particularlyimportant for both spouses to educate themselves about their joint finances so that nothing remains a secret to be overlooked. In the case of divorce, ignorance is not bliss.

Other Resources for Financial Issues of Divorce

For more information on how to handle these financial concerns, be sure to check outHow to Deal With the Financial Impacts of Divorce, which also includes a discussion of child support and alimony.

FAQs

What is the normal split of assets in a divorce? ›

The Court will normally consider a 50/50 split of the matrimonial assets when dealing with a long marriage following the 'yardstick of equality'. With short marriages, capital contributions become more relevant in deciding how assets are divided in a divorce. Age is also an important consideration.

What are capital needs in a divorce? ›

Capital needs are most often for a home, furnishings and a car. Income needs is the amount of money each party requires to live on each month.

How do courts decide financial settlement? ›

There is no hard and fast rule. The Court will apply a number of statutory factors which include the age, income earning capacity, responsibilities of the parties, their needs, the length of the marriage and the parties' resources including their pensions.

How do you manage finances in a divorce? ›

  1. Struggling financially during or after divorce? Here's 10 ways you can help build your wealth back and maintain it. ...
  2. Get financial advice. ...
  3. Invest the money. ...
  4. Don't settle disputes in court. ...
  5. Don't buy a home like the one you had. ...
  6. Negotiate and don't split it all 50/50. ...
  7. Return to work. ...
  8. Don't give up on a pension easily.
3 Jan 2022

Am I entitled to half my husband's pension when we divorce? ›

The only way to divide your husband's pension during the divorce will be via a court order. Whether the courts will agree to splitting the pension in the divorce will usually depend on the pension provisions of the two parties.

Is my wife entitled to half my house if it's in my name? ›

It depends on who is named on the mortgage. This is called joint and several liability. You are both responsible and liable for paying the mortgage. That doesn't mean you are both liable for half each though – if one person doesn't pay their share, the other can still be held responsible for the whole mortgage.

Do you have to show bank statements in divorce? ›

All accounts must be disclosed, so if your spouse conducts an account under the name of a third party or alias, that account will still be under his/her control and will have to be disclosed. Credit card statements will show your spouse's spending capacity.

Who makes house payment during divorce? ›

The person liable for paying the mortgage during a separation is the person whose name appears on the mortgage note. If both your names are on the mortgage, then you are both legally responsible for making the payments. Even though you're separated, you need to continue to make your mortgage payments on time.

What happens to finances in a divorce? ›

Are debts matrimonial assets? Yes, if you and your spouse have accrued any debts during the term of your marriage, these will also be split as part of your divorce financial settlement. This includes your mortgage, credit cards, overdrafts, loans and any other commitments.

What is Form G in divorce? ›

A Form G is technically called a Notice of Response to First Appointment. It is a document that is used in Financial Remedy proceedings during a divorce or dissolution of a civil partnership.

How long does a divorce financial settlement take? ›

How long does it take to get a financial settlement? For a divorce/dissolution only - it takes on average four to six months to complete the process. If you're sorting out your finances and legalises your arrangement through the courts at the same time and are amicable the process takes on average six to twelve months.

How are assets calculated in a divorce? ›

When you get divorced, community property is generally divided equally between the spouses, while each spouse gets to keep his or her separate property. Equitable distribution: In all other states, assets and earnings accumulated during marriages are divided equitably (fairly) but not necessarily equally.

Should a man support his wife financially? ›

A married couple should combine their income and expenses and pay all bills from the combined total of both incomes. While it's totally OK if 1 spouse earns more than another, it's not OK for 1 spouse to not contribute financially if they have a job and earn an income.

What percentage of my pension is my ex wife entitled to? ›

Generally, your spouse is entitled to half of the earnings generated during the marriage; however, each state's law will determine the outcome. Some states are equitable distribution states, though this does not always mean a 50/50 split. Community property states stipulate a 50/50 split.

Do I have to support my wife after divorce? ›

As long as the couple remains married, the court does not set a time limit on spousal support. Maintenance on the other hand, is support the higher-earning spouse pays after the divorce is finalized.

How many years do you have to be married to get your spouse's pension? ›

Qualifying spouse beneficiaries must be married to the retiring spouse for at least one continuous year prior to applying for benefits, with certain exceptions. Yes, up to 50 percent of spouse's PIA if spouse is still living.

Is it better to divorce before or after retirement? ›

If you divorce before committing to retirement, you also have more financial options. Divorcing spouses may see their household income drop by between 23% and 41%. But if you're still working, you can work to make up for this loss before retiring.

Can my ex wife claim my pension if I remarry? ›

If one of you remarriages, however, they are barred from making certain financial claims against the ex-spouse. This is known as the 'remarriage trap' and does have its limitations: it can bar the remarried party from claiming property, income, or savings but doesn't extend to pensions.

Do I have to pay half the mortgage if I move out? ›

Nothing happens to your mortgage when you divorce or separate. It doesn't change. All parties on a joint mortgage are jointly and severally liable for making sure the full capital and interest payments are made every month, irrespective of who lives in the property or any personal agreements between borrowers.

Do you own a house if your name is on the deeds? ›

You own your home – either all or part of it – if your name is on a legal document called the title deeds. It might be owned: by one of you – which means it's in one of your names. jointly, by both of you – there are different forms of joint ownership.

How is a house split in a divorce? ›

There are three options for how to divide the home in your divorce: Sell the House. Agree to a Buyout. Co-Own the Home.
...
Agree to a Buyout
  1. Get other assets in exchange,
  2. Receive payments over time, or.
  3. Not have to pay alimony if it was going to be ordered.

What items are considered assets in a divorce? ›

The legal definition of an asset in a divorce is anything that has a real value. Assets can include tangible items that can be bought and sold such as cars, properties, furniture, or jewelry. Collectables, art, and memorabilia are frequently over looked assets because their value is often hard to ascertain.

Can the court look at your bank account? ›

To find out if you've got savings or are expecting a pay out, your creditor can get details of your bank accounts and other financial circumstances. To do this they can apply to the court for an order to obtain information. You'll have to go to court to give this information on oath.

Can credit card statements be used in divorce? ›

If you're going through a divorce, one of the first things an attorney will tell you is to gather your financial information, including bank account statements, credit card statements, title documents, and mortgage documents.

What should you not do during separation? ›

But if you don't want to end up like those couples, then here are the things which you should not do during a separation.
  • First, what to do. ...
  • Don't Deny your Partner some Time with your Kids. ...
  • Never Rush into a New Relationship. ...
  • Never Publicize your Separation. ...
  • Never Badmouth your Ex. ...
  • Ending it With Bad Blood.
24 Dec 2019

How is a house buyout calculated in a divorce? ›

To determine how much you must pay to buy out the house, add your ex's equity to the amount you still owe on your mortgage. Using the same example, you'd need to pay $300,000 ($200,000 remaining mortgage balance + $100,000 ex-spouse equity) to buy out your ex's equity and take ownership of the house.

How do I divorce my wife and keep my money? ›

Protecting Your Money in a Divorce
  1. Hire an experienced divorce attorney. Ideally, this person will emphasize mediation or collaborative divorce over litigation. ...
  2. Open accounts in your name only. ...
  3. Sort out mortgage and rent payments. ...
  4. Be prepared to share retirement accounts.

How do you secretly prepare for a divorce? ›

Practical suggestions for how do you secretly prepare for divorce
  1. Inventory your assets and income and those of your spouse. ...
  2. Understanding your social media accounts. ...
  3. Getting a separate mailbox. ...
  4. Open a separate bank account.
11 Jan 2022

What is ex wife entitled to after divorce? ›

Generally, a former spouse is entitled to claim against your money or assets at any point up until they re-marry unless a financial consent order has been approved by the court. Many separating couples are under the impression that getting divorced breaks all financial ties.

What is an FDA in divorce? ›

The First Directions Appointment, or 'FDA', is the first hearing in relation to a financial dispute arising from divorce. The Court will consider both your and your partner's financial disclosures to establish if any further information is required from either of you.

Do you have to go to court for a financial settlement? ›

A settlement can be negotiated between the parties, with the assistance of their solicitors, without the need to go to Court. This can help to minimise the legal fees incurred by both sides.

How long does financial settlement take in court? ›

This process normally takes between 6 and 8 months from start to finish, as court lead times are currently longer than they used to be. However, if you are not in agreement, and particularly if your spouse is not willing to disclose their financial position, then it can take much longer; up to 12 to 18 months or more.

What is an open offer in divorce? ›

Open offers, made in either correspondence or in discussions between solicitors, are ones that can be disclosed to a court. They are used to put a client's case at their highest position, ie to put the client's best case to the court, or to the other side.

Can my husband take my money in divorce? ›

Until you have a court order, any property or debt from your marriage still belongs to both of you. This is true no matter who is using it or who has it with them. The same is true of debts.

Can ex wife claim inheritance after divorce? ›

In the overwhelming majority states, an inheritance is considered separate property, belonging exclusively to the spouse who received it and it cannot be divided in a divorce. That holds true whether a spouse received the inheritance before or during the marriage.

How is 401k split in divorce? ›

You Need a Court Order to Divide a 401(k)

Pulling money out of a 401(k) to finalize your divorce isn't something you can do on a whim. First, a judge has to sign off on a Qualified Domestic Relations Order (QDRO), which confirms each spouse's right to a portion of the money.

Who should pay bills in a marriage? ›

Some couples pay their household bills from a joint account to which both spouses contribute. Others divide the bills, with each partner paying his or her share from their individual accounts. What's important is to make it an equitable division.

What is a husband duties to his wife? ›

Husband your love towards her shows in your talking, caring, helping, and other activities you do every day. The simplest way to love your wife is to satisfy her emotionally. And you feel her special, show your love in different ways. Let her go outside and spend time together and sometimes give her surprise gifts.

How much should a wife contribute financially? ›

Instead, Long says, do some math. Make a list of all your combined expenses: housing, taxes, insurance, utilities. Then talk salary. If you make $60,000 and your partner makes $40,000, then you should pay 60 percent of that total toward the shared expenses and your partner 40 percent.

How do I protect my pension in a divorce? ›

There are two basic ways to treat a pension in a divorce: either both spouses can agree to share the monthly annuity payments (or lump-sum payment) during retirement, or they can divide the present value of the pension at the time of the divorce.

Can my ex wife get my pension before I retire? ›

The Legalese Behind a Pension in a Divorce

In order to gain access to a percentage of your pension, your spouse would have to specifically ask for their share at the time of the divorce – not at the time of your retirement. This is done via a court order called a qualified domestic relations order (QDRO).

How do I stop my wife from taking half? ›

7 Tips to Avoid Giving Up Too Much to Your Wife in Your Divorce
  1. Tip #1: Identify Your “Separate” Assets. ...
  2. Tip #2: Prioritize Your “Marital” Assets. ...
  3. Tip #3: Think about Your Wife's Priorities. ...
  4. Tip #4: Weigh Your Options. ...
  5. Tip #5: Consider the Other Financial Aspects of Your Divorce. ...
  6. Tip #6: Put Together a Plan.
20 Jul 2019

How much alimony can a wife get? ›

If the alimony is being paid on a monthly basis, the Supreme Court of India has set 25% of the husband's net monthly salary as the benchmark amount that should be granted to the wife. There is no such benchmark for one-time settlement, but usually, the amount ranges between 1/5th to 1/3rd of the husband's net worth.

Can a working wife get alimony? ›

Even though your spouse has a full-time job, they are still entitled to ask for spousal support. They can ask for support once a legal separation or divorce is filed with the court. If the judge deems it necessary, he or she can order you to pay spousal support even while your divorce is pending.

How much maintenance does a divorced wife need? ›

The Supreme Court has set a bench of 25% of the husband's net salary to be paid as alimony to the estranged wife. The Court said 25% is a “just and proper” amount for alimony as husband might have to take care of the needs of his family, if he has remarried.

What is a 60/40 split in divorce? ›

The most typical division, however, is a 60/40 split. This typically happens when one person makes more money while the other has a greater share of the obligation for caring for the children after the divorce, or may have a limited ability to earn money or less superannuation.

What is ex wife entitled to after divorce? ›

Generally, a former spouse is entitled to claim against your money or assets at any point up until they re-marry unless a financial consent order has been approved by the court. Many separating couples are under the impression that getting divorced breaks all financial ties.

How is equity split in a house? ›

The cleanest way to divide the home's equity is to sell the house. Once the couple retire the mortgage debt, pay taxes and the sale-related expenses, they split the remaining money. By selling the house, the two exes can more easily untangle from each other's lives, Ballin says.

What is a fair divorce settlement UK? ›

Fair divorce settlement examples in the UK

If the divorcing couple cannot agree, the court may need to decide on a fair outcome. The general legal principle to a fair divorce settlement in the UK is to divide the matrimonial pot equally upon divorce, with an assumption of a 50:50 split as the starting point.

How is the house split in divorce? ›

California is a community property state, not an equitable distribution state. This means that any assets or property gained during the course of a marriage belong equally to both spouses and, therefore, the property must be equally divided between the two spouse by the court in a divorce.

Can my wife take half of everything? ›

In California, there is no 50/50 split of marital property.

According to California divorce laws, when a married couple gets divorced, their community property and debts will be divided equitably. This means they will be divided fairly and equally.

How is spousal maintenance calculated? ›

When it comes to calculating spousal maintenance, there is no set formula to follow – unlike child maintenance. Usually, the amount to be paid is determined by the couple or by the court after considering the circumstances. The court will decide both the amount to be paid and the length of time.

What is a clean break divorce? ›

A clean break means ending the financial ties between you and your ex-partner (husband, wife or civil partner) as soon as reasonable after your divorce or dissolution. Where there is a clean break, there will be no spousal maintenance payments.

Do I have to support my wife after divorce? ›

As long as the couple remains married, the court does not set a time limit on spousal support. Maintenance on the other hand, is support the higher-earning spouse pays after the divorce is finalized.

Can my ex wife claim my pension if I remarry? ›

If one of you remarriages, however, they are barred from making certain financial claims against the ex-spouse. This is known as the 'remarriage trap' and does have its limitations: it can bar the remarried party from claiming property, income, or savings but doesn't extend to pensions.

How is house buyout calculated in a divorce? ›

To determine how much you must pay to buy out the house, add your ex's equity to the amount you still owe on your mortgage. Using the same example, you'd need to pay $300,000 ($200,000 remaining mortgage balance + $100,000 ex-spouse equity) to buy out your ex's equity and take ownership of the house.

Who pays mortgage in a divorce? ›

In other words, your mortgage is almost certainly a joint debt that your divorcing spouse also remains responsible for until your divorce is finalized and the loan is transferred to one or the other of you (usually via a buyout) or sold.

How do I protect my house in a divorce? ›

In many cases, the simplest way to keep the house in a divorce if it still has a mortgage is to refinance. The best-case scenario is for you to refinance and remove the mortgage from your ex's name altogether. You'll need to qualify for the mortgage on your own, so make sure to have all your financial ducks in a row.

What assets are excluded from divorce? ›

As well as pension plans, investments, savings and high-value possessions, non-matrimonial assets can include inheritance, family businesses and property purchased in your own name, rather than jointly with your spouse.

Is my wife entitled to half my savings UK? ›

A financial settlement provides a financial clean break, meaning that neither spouse can make any future claims against each other's future assets, including personal savings.

Does length of marriage affect divorce settlement UK? ›

But does length of marriage affect divorce settlements in the UK? Yes the length of the marriage can have a significant impact on the determination of a divorce settlement. We'll explore the potential differences in a fair divorce settlement for both short and long marriages and explain how and why they might differ.

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